#6 Dividends

Dividend is a fraction of the profit of the company that the management decides to give to the shareholders. Most of the old companies that have a regular business and are no longer expanding pay good dividends.

A dividend of 10% means that on a stock with a face value of Rs 10 a Dividend of Rs. 1 will be recievable by the shareholder.

One important thing is to look for is the Dividend Yield.
Generally, for a a company with no growth in terms of sales and net profit, one should prefer stocks with dividend yields at atleast as much as the prevailing interest rates.

For growing and expanding companies cash is needed to expand the business and the company may decide not to pay a dividends at all.

Remember that a dividend is sometimes an important factor(in terms of management credibility) when chosing a stock, though it should not be the only parameter.

Note that the dividend yield is almost never more than 4-5% even though the dividend declared may be sometimes 1000% and even more ! ! !